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Encouraging university spin-outs31/01/2006. Source: SJ Berwin. Simon Witney
 European policy-makers recognised some time ago that transferring technology from academic institutions to commercially viable and properly funded businesses plays a vital role in stimulating enterprise in the economy, notes SJ Berwin. In the UK, various initiatives have been launched in recent years that have aimed to stimulate that - and with significant success, as highlighted by an important report issued at the end of last year by the BVCA.
As always, though, there is much more that can - and should - be done, in Britain and elsewhere in Europe.
The BVCA report identifies some clear successes for government intervention. It found that, following a boost to funding in 1999, 40 more Technology Transfer Offices were established within British universities, bringing the total to 126. These TTOs play a critical role in identifying research and emergent technology that can be commercialised, and in facilitating that process.
Partly as a result of that, and of increased availability of funds more generally, there was a sharp increase in the number of spin-outs from the 36 leading research universities in the UK, to a peak of 89 in 2001. Of the 435 spin-outs identified in the survey (mostly life science and IT based companies), 12 went public in 2004 - and, for many of these, the stimulation provided by government supported initiatives was a critical success factor. Not only was direct funding important, but research and development grants and specific tax policies also added vital support.
But there are still problems. The number of new spin-outs slumped in 2002 and 2003. One reason for this - although clearly not the only reason - was an unintended consequence of hurriedly implemented, and ill-thought through, changes to UK tax law. These changes affected the way in which equity based "remuneration" was charged to income tax, and had the effect of inhibiting spin-outs. The government did deal with the issue - but it took much too long to do so.
But many of the problems are not so easily avoided, or corrected. One, for instance, is the difficulty in attracting entrepreneurial talent to early stage spin-outs, and critically the report suggests that this is not due to a lack of available people - but a reluctance to agree a compensation package that will attract candidates of the right calibre.
Universities also need to get better at protecting the intellectual property rights that will later be so crucial to the spin-out company, and improve the rigour with which proof of market and technology is tested - both of which require funding that is unlikely to be available from the market. And, although much has already been achieved in this regard, better networks must be established to give universities direct access to more venture capitalists, business angels, established companies and entrepreneurs.
The BVCA's report makes some suggestions in these and other areas. If those are adopted and followed through - and many also apply for policy-makers outside Britain - there is a real opportunity to build on the successes of recent years.
Simon Witney
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on our services to the private equity industry please contact Simon Witney in our London office 020 7533 2222 or visit our website at www.sjberwin.com
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